Capital Market Distortion, Agricultural Producer Service, and Wage Inequality in the Small-Scale Agriculture

Agriculture in developing countries operates on small-scale plots in general, which makes the direct utilization of durable capital equipment difficult. An intermediate sector is needed to facilitate the usage of capital. By accommodating the agricultural producer service sector, this chapter builds three-sector general equilibrium models and investigates the impact of mitigation of capital market distortion on wage inequality between skilled and unskilled labor. The chapter highlights the agricultural producer service sector and substitution between service and unskilled labor and arrives that mitigation of capital market distortion may widen wage inequality. The main conclusion is different from existing literature and provides new insights into this issue.